Usually these lotteries give you the option to take a reduced 'lump sum' payment, or to get the full amount as payments spread out over 20 years or similar.

Wrong way around - the lump sum is the full payment. The amount they advertise is the amount they predict they can give you over 25 years by investing the lump sum amount conservatively. If a smart person wins the lottery and gets a finance guy they can usually do much better.

If you don't take the lump sum which is half, you get X amount over a 20 to 25 year period, minus taxes.

The Lottery pockets the other half.

I think spenser is right, from what I have heard/read about US lotteries, they "guarantee" the $217 million advertised will be paid minus taxes over X amount of years. In reality, they don't have this much on hand, so the invest it instead to try and make $217 million themselves to give to you. If their investments go bad and they come up short at the end of X amount of years, they will have to pay out that difference and if they invest well, they keep the amount over $217 million for themselves. Alternatively, if you want to take a gamble, you can get yourself a GOOD financial advisor/investor who thinks that they can use that $136.4 lump sum to make good investments that would yield more than $217 million over X amount of years. Not guaranteed, but that is a chance you take. Or maybe you just want it now and don't care about investing.

If you don't take the lump sum which is half, you get X amount over a 20 to 25 year period, minus taxes.

The Lottery pockets the other half.

What is the difference between Cash Option and Annuity?

Cash option:

For every dollar spent on a jackpot lotto game, a certain percentage is placed immediately into a cash pool.

When you win the jackpot and choose the cash option, you will get the entire amount in the cash pool, minus taxes. After your ticket is verified, you will receive your cash option payment in one lump sum.

Annuity:

When you win the jackpot and choose the annuity option, the cash pool is used to buy government bonds that pay out over a 25-year period for Megabucks and Mega Millions or over a 30-year period for Powerball.

You will receive a payment every year until the full annuity amount is paid out. Taxes are withheld from each payment.

It is similar to how a savings bond works. A $100 savings bond costs the purchaser only $50 today. If the holder of the bond waits until maturity, the bond is then worth the entire $100.

Note: After presenting the winning ticket you have 60 days to decide on cash option or annuity. After 60 days have passed, if you have not made a decision, the payment automatically becomes an annuity.

The state gets the other percentage of the sale mentioned in the first bullet - that's how they make money off the lottery. Then, in either case, you'll get taxed in the top tax bracket on the winnings, which is 39% now. Still not much of an issue if you win the big jackpot.